Question

The traditional view of the production process is that capital is subject to

A. diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.
B. diminishing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries.
C. increasing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.
D. increasing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries.

Answer 1

Answer:

The correct option is A

Explanation:

Option A is true because it is an implication of the diminishing returns as indicated by the catch-up effect.

Option B is not true as the rate of growth for the initially poor countries is higher than that of rich countries.

Option C is not true as the traditional concept is by diminishing the returns, not by increasing returns.

Option D is not true as the traditional concept is by diminishing the returns, not by increasing returns.

Answer 2

Answer:

A. diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.

Explanation:

The phenomenon of declining contributions to capital has a significant underlying assumption:

whether it begins relatively poor, other things being equal, it would be easier for a country to grow rapidly.

Such impact on the subsequent growth from the initial conditions is called the catch-up effect.